“Our Greedy Colleges” and The Endless Student Loan Crisis

In this series, students and industry experts share stories and perspectives from inside the student debt crisis. Share yours here using #StudentDebt.

Usually, an article on the student loan debt crisis will start off by listing off a litany of facts and statistics explaining how dire the situation is for recent graduates, current college students, and prospective enrollees still in high school. Then, there will be suggestions aimed at students, public and private colleges, state governments, and the federal government to improve the affordability of the higher education system based on these dismal, fear-inducing figures.

Unfortunately, these articles don’t do a great job at providing readers with an appropriate framing of the problems surrounding student loan debt. By only suggesting incomplete solutions based on frightening statistics (that we don’t fully understand the causes behind them), we ignore crucial opportunities to ask the appropriate questions about how we truly value education: is a degree from an institution of higher learning just another commodity to be bought and sold? Or should we continue to promote the “everyone-should-go-to-college” mantra because we as a society ideally value the pursuit of knowledge as a good in of itself, regardless of the job prospects that may result from it? If we focus on answering these questions first based on a proper understanding the problem, I believe we as a society will be able to sort out the issue of student loans.

Before we can get to those fundamental questions though, let us try to understand at a basic level what could be driving the cost of college up year after year.

Are American Households Able to Keep Up With Rising College Costs?

From the College Board, “Between 2005-06 and 2015-16, published in-state tuition and fees at public four-year institutions increased at an average rate of 3.4% per year beyond inflation, compared to average annual rates of increase of 4.2% between 1985-86 and 1995-96 and 4.3% between 1995-96 and 2005-06.”

The average college tuition increase around hovers around three to four percent per year over each of the past three decades? That doesn’t sound so bad at first glance, provided that American household incomes continue to also rise in a similar fashion! However, the College Board tells us a different story, “Median family income in the United States rose at an average rate of 0.7% per year between 1985 and 1995 and 0.8% per year between 1995 and 2005. Between 2005 and 2014, median family income declined at an average rate of 0.2% per year, after adjusting for inflation.”

With college getting more expensive year after year and household incomes being unable to match the pace of rising tuition costs, it makes sense that more families rely on easy access to federal loans to help bridge the financial gaps in funding their children’s education.

College Affordability: Are Federal Loans Contributing to a Larger Tuition Bill?

With more students and their families opting for federal student loans to cover the rising cost of higher education, some policy analysts have asked whether these easy to acquire funds have only exacerbated the problem of increased tuition at colleges all over the United States.

Queue the Bennett Hypothesis: on February 18th, 1987, The New York Times published an opinion piece aptly titled “Our Greedy Colleges”, written by William J. Bennett, then Secretary of Education under President Ronald Reagan.

In his piece, he was the first to pose the correlation between expanding access to federal student loans and increasing college tuition.

"If anything, increases in financial aid in recent years have enabled colleges and universities blithely to raise their tuitions, confident that Federal loan subsidies would help cushion the increase. In 1978, subsidies became available to a greatly expanded number of students. In 1980, college tuitions began rising year after year at a rate that exceeded inflation. Federal student aid policies do not cause college price inflation, but there is little doubt that they help make it possible." - Secretary of Education William J. Bennett

To his credit, he has maintained his stance on the issue, as evidenced in a relatively recent interview by The New York Times in September 2013.

"If the federal government gives money, tuition goes up. If the federal government doesn’t give money, it goes up. Now, I think the availability of federal funding drives it up more quickly and more surely. Federal student aid makes it easier for colleges to do what they’re going to do anyway, which is raise tuition. There’s more money available." - Former Secretary of Education William J. Bennett

Bennett’s hypothesis is still withstanding the test of time under scrutiny, and is even close to being proven true – a recent report from the Federal Reserve shows the correlation between federal aid for education and college tuition. Slate’s senior business and economics correspondent Jordan Weissmann reveals from the Reserve’s paper the following:

"Looking at both public and private nonprofit colleges during the mid-2000s, they [the Federal Reserve] found that schools raised tuition by 55 cents for each $1 increase in Pell grants their undergraduates received, and by 60 to 70 cents for each extra dollar of subsidized student loans."

Frustratingly, the jury is still out whether federal loans are the sole source of rising college costs. Other researchers have published reports establishing no correlation between the two also – indicating that this issue is still being actively debated. Chances are federal loans are only one of the many factors (others could include administrative costs continuing to rise across all colleges around the U.S., state funding for education decreasing as well, etc.).

The Atlantic, in their piece related to this same topic, sums up my frustrations on the matter.

“So we don't know if Bennett was 100 percent right, but he might not have been totally off the mark either. It's too bad it's taken more than two decades for policy makers to start talking about solutions for a complicated problem.”

The True Purpose of an Education?

If you’ve read this far, I sincerely commend you (this is my longest article to date). I also have to say that if you’re expecting an answer to the questions I’ve posed or solutions to the student loan debt crisis, you won’t find them here. I’m sorry to disappoint, but I don’t have anything to offer you in that department. If policy analysts who have spent the majority of their careers are unable to find definitive answers, what makes you think a senior in college will be able to do so?

"It's too bad it's taken more than two decades for policy makers to start talking about solutions for a complicated problem."

The only thing I will leave you with are more questions to try and answer. I personally think that within the questions I’m about to pose to you will allow us to reexamine our priorities concerning higher education, and could possibly lead us to a solution to the student loan debt crisis.

What is the true purpose of a college education?

Is it to pursue knowledge for its own sake because we as a society believe that the education of the mind is critical to improve the collective welfare of all and the state of the human condition?

Or is it solely a marker of meeting a requirement to apply to certain jobs in order to have a promising and fulfilling career?

Does a degree from an institute of higher learning only have worth or utility if one is able to use the lessons learned and knowledge obtained to provide a living for themselves and their loved ones?

Should we accept the outcome of college students being indebted to the federal government and private loaners for years to come in their pursuit of an education based on what the job market wants in terms of qualifications to fulfill certain needs of our society?

I believe by starting with these questions in our endless discussions about student debt, our subsequent deliberations will lead to a consensus agreement as to how to make colleges more affordable.

What do you think about the purpose of an education and the affordability of higher learning? Let us know in the comments below!

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Frederick Daso is a rising senior at the Massachusetts Institute of Technology. He is interested in learning more about or exploring opportunities in the engineering, technology, management consulting, and/or journalism fields. Feel free to contact him at [email protected].